Dubai: In the six GCC countries, overall real GDP growth is set to ease from 2.2 per cent in 2018 to 1.8 per cent in 2019, dragged down by compliance with the recent Opec+ deal, according to latest forecasts from the Institute of International Finance (IIF).

Despite a decline in overall GDP growth from lower exports and potentially lower oil prices, the IIF sees the non-oil growth accelerating from 2.7 per cent in 2018 to 3.3 per cent in 2019 supported by fiscal expansion, including the implementation of major public investment projects.

Oil prices have recouped about half of the losses incurred during the fourth quarter of 2018, supported by production cuts from Opec, particularly Saudi Arabia, which has already cut its production by about 400,000 barrels a day (b/d) below the level of October 2018.

“We expect Brent oil prices to average $65 [Dh238.7] per barrel in 2019 and $60 in 2020 based on strong compliance by Saudi Arabia, the UAE, and Kuwait, and weaker compliance by Iraq and Russia. However, the range of uncertainty over the price of oil in the short term remains large,” said Garbis Iradian, chief economist Mena of the IIF.

On the downside, the IIF sees the possibility of a surge in supply in the second half of 2019 and 2020, driven by a rapid increase in US output and the possibility that the current production cuts by Opec and its allies are not renewed. The shale revolution has made the US the world’s top oil producer and is reshaping the global oil market.

Various estimates place the production-weighted breakeven price in the range of $45-$55 per barrel across the shale industry, with major fields falling on either side of that average.

Deficit & debt surge

The aggregated fiscal deficit of the GCC is expected to widen significantly during the next two years. Lower oil revenues and higher spending will raise the aggregated fiscal deficit from 1.5 per cent of GDP to 4 per cent in 2019. The current account surplus, according to the IIF will shrink from $157 billion in 2018 to $85 billion in 2019, equivalent to 5.1 per cent of GDP.

Financial soundness indicators suggest that the banking systems remain sound. Capital adequacy ratios exceed 16 per cent in the six GCC countries. NPLs to total loans are less than 2 per cent in Saudi Arabia, Qatar, Kuwait, and Oman, and between 5 and 7 per cent in Bahrain and the UAE. Private credit growth remains subdued due to weak domestic demand.

Sovereign long-term commercial borrowing in the a region could increase by 25 per cent this year after falling 38 per cent in 2018 according to a recent report from credit rating agency Standard & Poor’s

“This [decline in borrowings last year] was chiefly because higher oil prices and fiscal consolidation measures in GCC countries significantly reduced GCC sovereigns’ funding needs in 2018. However, lower oil prices in 2019 will not support a further reduction in GCC fiscal deficits,” said Trevor Cullinan, a credit analyst with S&P.